Weekly Update

The Markets:

Last week the Dow Jones Industrials and the S&P 500 Index advanced for the third week, and interest rates fell as well with bond prices generally rising.  The current average 30 year fixed rate mortgage today sits at 4.16% and the 15 year fixed rate is at 3.22%.  The 30 year fixed rate had touched 4.70% back on July 5th of this year. (Bankrate.com)  In addition, gold and silver prices rose last week as tracked by the gold Exchange Traded Fund, GLD, and the silver ETF, SLV.  (Google Finance)

What’s going on? The economy remains in a sluggish recovery, there’s no shortage of uncertainty on Main Street, and we’ve just witnessed a bruising battle on Capitol Hill.

For starters, the subpar economic recovery, coupled with the recent government shutdown, has increased odds that the Fed’s very easy monetary policy will remain in place for longer than many analysts had anticipated.  That expectation was cemented last week after the government reported September nonfarm payrolls rose by a less-than-forecast 148,000 (Bloomberg), down from an upwardly revised 193,000 in August.

Recall that the $85 billion in monthly bond buys by the Federal Reserve are designed to boost bond prices and lower bond yields (bond prices and yields are inversely related), which in turn reduces borrowing costs for consumers and business. The goal – encourage stronger spending, which should lead to more hiring.  Only then has the Fed said it will consider raising interest rates, giving embattled savers more acceptable returns.

laborstatistics

Note: the 521,000 rise in nonfarm payrolls in May 2010, followed by 4 months of declines, occurred amid the temporary surge in government hiring and ensuing layoffs tied to the 2010 census.

Without a significant improvement in the outlook for the labor market (you’ll see from the chart above that the 3-month moving average has been slowing for much of 2013), the Federal Reserve has pledged to continue purchasing longer-term Treasury bonds and mortgage-backed securities.

In other words, an economic recovery that can’t seem to break free of its low-growth orbit is encouraging a monetary policy by the Fed that has been beneficial to stocks.

Looking ahead, third quarter earnings from the major corporations will continue to pour in this week, along with a heavy plate of economic data, some of which was delayed due to the government shutdown.

Analysts will be keeping a close eye on the two-day Fed meeting this week which concludes on Wednesday. As previously mentioned, virtually no one expects any tweaks to Fed policy. Moreover, a Reuters’ poll of U.S. primary Treasury dealers revealed that the majority do not see any reduction in Fed bond buys until the March 2014 meeting.  That’s quite a change from the consensus earlier in the year that had expected a tapering in bond purchases to begin last month.  We will keep you advised.

Please don’t hesitate to call if you have any questions, or if we can be of further service in any way.  We appreciate the privilege to be of service.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly.  Past performance does not guarantee future results.

3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly.  Past performance does not guarantee future results.